Here we described what exactly a surety bond is and how to get a surety bond for your business, including some basics on the parties in a surety bond.

1. WHAT IS A SURETY BOND?
SURETY BONDS ARE AGREEMENTS IN WHICH THE ISSUER OF
THE BOND (THE “SURETY”) JOINS WITH ANOTHER PARTY (THE
“PRINCIPAL”) IN GUARANTEEING WORK OR PAYMENT TO A
THIRD PARTY (THE “OBLIGEE”).

2. OBLIGEE: THE PARTY (PERSON, CORPORATION,
OR GOVERNMENT AGENCY) TO WHOM A BOND IS
GIVEN. THE OBLIGEE IS THE PARTY PROTECTED
BY THE BOND. IN CONSTRUCTION, THIS IS
TYPICALLY THE OWNER OR THE GENERAL
CONTRACTOR.
PRINCIPAL: THE INDIVIDUAL (THAT’S YOU) WHO IS REQUIRED TO BE
BONDED BY THE OBLIGEE.
SURETY: A BOND COMPANY THAT GUARANTEES THE ACTS OF
ANOTHER PERSON.

3. BID BONDS –
A BID BOND GUARANTEES THAT THE BONDING COMPANY
(“SURETY”) WILL PROVIDE A PERFORMANCE AND PAYMENT
BOND ON BEHALF OF THE PRINCIPAL ONCE THE PRINCIPAL IS
AWARDED THE CONTRACT. A CLAIM CAN BE FILED AGAINST
THE SURETY IF THEY REFUSE TO WRITE THE PERFORMANCE
BOND.

4. PERFORMANCE BOND –
A PERFORMANCE BOND IS USED ONCE THE CONTRACT IS AWARDED.
A PERFORMANCE BOND PROTECTS THE OWNER FROM FINANCIAL
LOSS IN THE EVENT THAT THE CONTRACTOR FAILS TO PERFORM
THE CONTRACT IN ACCORDANCE WITH ITS TERMS AND
CONDITIONS. MOST PERFORMANCE BONDS INCLUDE A PROVISION
THAT COVERS WORKMANSHIP OF THE PROJECT FOR ONE YEAR
AFTER COMPLETION. A PERFORMANCE BOND IS TYPICALLY
INCLUDED WITH A PAYMENT BOND.

5. PAYMENT BOND –
A PAYMENT BOND, ALSO KNOWN AS A MATERIAL AND LABOR
BOND, PROTECTS CERTAIN SPECIFIED TIERS OF
SUBCONTRACTORS, MATERIAL SUPPLIERS, AND LABORERS
AGAINST THE CONTRACTOR NOT PAYING. IN GENERAL, THESE
CLAIMANTS HAVE A TENDENCY TO LOOK TO GET PAID
DIRECTLY BY THE SURETY COMPANY PURSUANT TO THE
TERMS OF THE PAYMENT BOND.